Enablers of the Housing Bubble – … This is why I have always thought that the argument that “Fannie and Freddie did it” is a non-starter. Two reasons: 1. Loans owned by Fannie and Freddie can be a problem for the government, but they are not a problem for the financial system-… 2. Fannie, Freddie, and Ginnie were losing market share as the housing bubble grew–not gaining it. … - Brad DeLong Blog
K&L Gates Sees Insurers, Community Banks Exempt from CFPA – By AUSTIN KILGORE – HousingWire
GMAC Shows Limits of Resolution, Systemic Risk Proposal – Posted by: Theo Francis – The talk about a third bailout for GMAC couldn’t come at a much more awkward time for the Administration or Rep. Barney Frank (D-Mass.): They have just unveiled a package of regulatory reforms billed as the toolbox for solving the “too big to fail” conundrum. Unfortunately, GMAC highlights its weak point all too clearly. – BusinessWeek
HAMP Read this - Sterling Technology Solutions’ Ron Morgan On HAMP Challenges – BY JOHN CLAPP – success and details how they handle HAMP – MortgageOrb
thanks taxpayers! – BlackRock, T. Rowe Price Seek Fed Loans to Buy TALF Securities - By Miles Weiss – … The funds may be able to reap returns of 15 percent or more on commercial mortgage-backed securities while limiting losses by passing most of the credit risk to the central bank (FED), according to Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago. … – Bloomberg
Another great video: Attack of the FHA loan files?
Most of the United States begins Daylight Saving Time at 2:00 a.m. on the second Sunday in March and reverts to standard time on the first Sunday in November. So by my calculations, that means that this Sunday here in the U.S. most of us “fall back” and it will dark by dinner time.I doubt if this will impact the pace of the Fed buying securities backed by mortgages. For the week ending on October 28th (yes, they end their week in the middle of the calendar week) the Federal Reserve’s MBS program was a net buyer of $18 billion agency MBS, which was the similar to last week. For the year purchases of agency MBS stand at $977 billion. Recently the Fed has had an appetite for 30-year 5.0s and 5.5s (which include 5.25-6.125% mortgages). The Federal Reserve finished its $300 billion Treasury purchase program yesterday, and at this point the mortgage purchase program will end in March. Continue reading – More on housing tax credit, US Bank, Loan Mod Agents, Flagstar, GMAC and daily joke: CLICK HERE
While the U.S. push for covered bonds as a funding source remains stalled (since 2007), Canada is moving ahead. The Royal Bank of Canada has just made history with its first issuance of covered bonds denominated in Canadian dollars (instead of euros) — and was greeted with such enthusiasm from investors that it decided to raise the amount by 50%. According to the rating agency DBRS, the cover pool consists of first-lien prime conventional residential mortgages. Read More>>
To Our Clients, Colleagues and Friends,
- Some banks are doing just fine. The $1.1 billion Bank of Marin ( Marin , California ) just repaid its TARP money, showed a nice third quarter profit, and raised its dividend. It doesn’t get much better than this. Not these days.
- Don Brown of Secondary Interactive sent us a chart comparing Wells Fargo’s Assignment-of-Trade pricing versus Best Efforts pricing. The pick-up was as low as 19 bps in June and as high as 120 bps in April. In early October it was about 58.
- A lot of you are thinking of selling directly to the agencies and retaining the servicing. One thing you should consider is that when you sell your loans servicing released, you’re paying taxes on that SRP. If you retain the servicing, assuming your cash flow allows it, you avoid paying those current period taxes.
- We are very pleased to formally announce that Mike McAuley has joined us at Garrett, Watts & Co. Mike ran the warehousing divisions at JP Morgan Chase and Washington Mutual and has over 20 years of experience in the field. One of things he’s already been doing is working with our community bank clients who went into warehouse lending, making certain they’re doing it the right way and in a safe and sound manner.
- Did you watch the short video clip from American Idiot last week? The theme of the musical was about a suburban kid who gets into the punk rock scene, gets his girlfriend pregnant, tries heroin, goes into rehab, finds redemption, and ends up in an office wearing a suit and tie and working at a computer all day – and then realizes he’s become an American Idiot. It’s sure not Rogers and Hammerstein, but the music, the energy and the dancing are terrific. Here it is again for those who missed it: http://www.berkeleyrep.org/multimedia/ai_trailer.asp After the show, there’s a party with the cast, and two of the cocktails they serve are Jesus of Suburbia (a vodka drink) and St. Jimmy (made with rum). It’s only appearing in Berkeley , but it should make it to Broadway soon.
- The latest New Yorker magazine had a good article on our use of unmanned drones in Afghanistan that shoot missiles to kill terrorists. Interestingly, Obama authorized more missile strikes in his first nine months in office than Bush did in his last three years.
- Here’s a shocker about the slowly dying newspaper business. The San Francisco Chronicle (i.e. The Incredible Shrinking Chronicle) has seen its circulation drop a stunning 25.8% in the past six months. Will there be any newspapers in 10 years? The Chronicle says its cost-cutting finally got it to break-even, but just like with banks, cost cutting goes only so far, and at some point, you need to grow your revenue.
- We spoke to a noted economist the other evening about Milton Friedman’s Chicago Boys and their Shock Treatment to introduce market forces into non-market economies. We’ve got too many other books to read to look into this topic, but do any of you have any opinions on this? And if you look at Chile , can you ever have truly free markets when the government is controlled by autocrats? Don’t you need free minds to have free markets?
- We just gave a lecture at the University of California (“Welcome to Hell: Capital Markets and Bank Regulation”), and the students kept us there for over two hours of additional questions and discussion. If anyone is worried about the future of our country, they should spend time with college kids to see how remarkably bright, engaged and intellectually curious they are. If they’re our future, our future is bright.
- This Sunday will be the first time in history you have games being played in major league baseball, the National Football League, The National Hockey League, and the NBA, all on the same day. It’s never happened before, and it must be pure heaven for couch potatoes everywhere.
- We picked up a few Nancy Drew mysteries at a used bookshop two weeks ago, and each had essentially the same plot: Sixteen-year old Nancy Drew visits a friend and learns of a mystery involving a lost treasure. An anonymous note slipped under the door warns her “Keep off the case… or else.” A car chase ensues. While playing detective, Nancy gets knocked out by a crook and wakes up in an old mansion, where she discovers a secret passageway, solves the mystery, and on the last page, social order is restored. Very formulaic, but still fun to read.
- We read an article that listed the 1989 Oakland A’s as one of the five greatest teams of all time. Maybe, but you have to include the 1927 Yankees, the 1937 Yankees (DiMaggio, Gehrig, Dickey), the 1967 Cardinals, and probably the 1970 Orioles, the 1973 A’s, the 1976 Reds, the 1984 Tigers, and the 1986 Mets. If we find one more, that will make it the top ten, and maybe limiting it to five is just too difficult. We’ll try to highlight these teams in the next several weeks.
- When you say “There’s a lot of foreclosure activity on my street”, the word is spelled a lot and not alot. People, it’stwo words, not one. If you can’t remember this, you could simply say “There’s foreclosure activity up the wazoo on my street”, thus avoiding having to remember how to spell a lot. If you want to be absolutely clear in your meaning, though, you should more properly say “There’s foreclosure activity up the wazootie on my street,” as wazootie is the subjunctive participle of the root word wazoo.
- This is a sign for a town in Newfoundland , Canada . And don’t you think the city council there would come up with a better name?
There was a subdivision once where the city council wouldn’t give the builder the zoning he wanted, so he named his streets Hitler Boulevard , Auschwitz Avenue , Chernobyl Court and so on. The city fathers caved in and gave him what he wanted in return for his dropping those names.
- We just saw another article about all the growth in Dubai , with photos of all those high-rises, hotels, malls and condos sprouting up everywhere. Every time we see those photos, we wonder, how the heck do you short Dubai ? If you have any ideas, let us know. It just seems there’s going to be a very unpleasant ending to that bubble over there.
- There was a time when a good Moody’s or S&P rating meant everything, and it turns out, of course, that their ratings meant nothing. So it’s fascinating to see some sizeable bond issues come to market recently with no rating at all. One was issued by Credit Suisse, and their selling unrated bonds would have been unthinkable a year ago.
- Who was really responsible for the fall of the Berlin Wall and the ensuing fall of the Soviet Union ? Lech Walesa, Ronald Reagan, Pope John Paul II? They all played a role, but the real hero was a low-level East German Politburo member named Gunter Schabowski. We’re dead serious, and we’ll write about it around November 9th, the 20th anniversary of the fall of the Berlin Wall.
Earlier this week a graduate student and Phillies fan posted an online ad that included “Gorgeous, buxom blond in desperate need of two World Series tickets. Price negotiable. I’m very creative.” On Tuesday, she met an undercover cop at a bar and was arrested for offering sex in exchange for the tickets. Anyone who’s that big a fan should definitely have the charges dropped.
Garrett, Watts & Co.
Helping mortgage lenders increase revenues, control costs, and better manage risk
Joe Garrett 510-469-8633 - Corky Watts 408-497-3135 - Mike McAuley 281-250-2536
by Fred Koons, Chairman. SkillBridge Consulting, LLC
Looking through our rear view mirror the current state of demise in Mortgage Banking appears well founded. Leading up to the recently experienced crash we were gluttons for stated income products, no down payments, negative amortization and plenty of pay options in a world where property values were guaranteed to appreciate. The carnage is widespread with none more evident than the near destruction of the Mortgage Broker Channel. Bob Dylan’s song The Times They Are A Changin’ written some 40 years ago aptly describes the paradigm shift now taking place in the Mortgage Market.
Community Banks are uniquely qualified to fill the void left by Mortgage Brokers. They are chartered to serve their local markets; their Boards are influential in the market place, have adequate capital, can fund their own loans, have access to seasoned talent pool, inexpensive technology and are not over burdened by regulatory pressure. The quality of loans being originated is higher than ever due to market driven property values, and conservative underwriting on simple loan products, with down payments. Not to mention that the lack of competition, historically low interest rates and the yield curve translate to high margins and profitable mortgage businesses.
Our Company is working with a number of these Community Banks to start up or expand their Mortgage Business with attractive financial results. The process requires a well thought out strategy, a commitment to building an efficient and effective structure and a risk management process to execute the business plan.
You may read the full details of this memo below.
Community Banking Memorandum 10-23-09 (1)
For more information on our Company and a complete list of services please visit our website at www.skillbridge.biz to learn about what we do.
Commercial real estate valuations and office jobs – Commercial real estate valuations seem to coincide quite well with the overall number of office jobs. It’s not necessarily obvious that this should be the case, because commercial properties include retail, multifamily, and other non-office properties. Nevertheless the relationship is striking. – Sober Look Blog
US Housing Price Decline Continues to Slow – The pace of housing price declines in US cities continued to slow in August, but the annual returns of the Case Shiller 10-City and 20-City Composite Home Price Indices still were down 10.6% and 11.3%, respectively from a year earlier. Nineteen of the 20 metro areas and both Composites showed an improvement in the annual rates of decline with August’s readings compared to July … As of August 2009, average home prices across the United States are at similar levels to where they were in the autumn of 2003. … – Research Recap
Case-Shiller HPI 2nd derivative problems? – Tim Iacono – Earlier this year, as economic conditions were still getting worse but at a lesser pace, market analysts talked about an improving “second derivative” as a hopeful sign for the future. Is it now time to start talking about second derivatives again? – themessthatgreenspanmande
Invesco, Marathon say toxic assets hold value for PPIP – By Nancy Leinfuss – Reuters
Home Refinancing May Never Look So Good Again: John F. Wasik – If you need to refinance your home mortgages, don’t wait. It’s not time to play chicken. Lock in the best deal now. Mortgage rates have climbed over the last two weeks, according to mortgage buyer Freddie Mac of McLean, Virginia. … – Bloomberg
Big home-loan limits likely to stay till 2011 – posted by Mathew Padilla – The latest from National Mortgage News …: House and Senate appropriators have agreed to extend the current loan limits for Fannie Mae, Freddie Mac and Federal Housing Administration loans for another year as part of the continuing funding resolution Congress is expected to pass this week. “The CR [continuing resolution] maintains the limits for FHA, GSE … single-family mortgages at $729,750 through the end of calendar year 2010,” – OC Register
China’s 8.9% Growth? No Way - Gordon G. Chang – Beijing has spent its way to a sugar high. – Forbes
A Moment Too Soon After the Financial Crisis – By Brad DeLong – Examining the recovery paths of major industrial powers in the 1930s tells us that thoughts of reversion to normal policies — whether monetary, exchange rate, fiscal or banking — need to be delayed until global recovery to normal is nearly completed. – Cajing.com.cn
Treasury is right to go long - Posted by: Rolfe Winkler – Timothy Geithner wants to lock in low rates for the government while he can, extending the maturity of Treasury debt to 72 months from 49, a 26-year low. It’s a smart move — if he can pull it off. To do so, he’ll have to increase longer-term issuance by 40 percent, to $600 billion … - Reuters
Three cheers for the death of old economics – The orthodox mathematical model took no account of reality. The new George Soros institute should bring back some sanity – Anatole Kaletsky – … Physics, chemistry and biology use mathematical models to draw conclusions that are then tested against reality. If reality contradicts these tests, then scientists reject the models. Today’s academic economics reverses this process: if models disagree with reality, it is reality that economists want to change. … – Times.co.uk
Contrarians Denninger, Dent, Faber and Hoye Looking for Dollar Rebound – Author: Mac Slavo – SHTFPLAN.com
By Pat Cutler
One of the disadvantages of being self-employed is the lack of group health insurance. Since I have an individual policy, my Out-of-Pocket (OOP) costs such as deductibles and co-payments tend to be high. September 30th marked the end of the 12 month deductible period for my medical insurance policy. As a self admitted hypochondriac, I have no trouble meeting my deductible early in the year. I call the doctor as soon as I exhibit the slightest symptom – a slight rash that I am sure is leprosy, a sore wrist that indicates the onset of arthritis, sneezing that predicts a sinus infection or pneumonia. During my routine physical in August, the doctor informed me that I was due for a stress test and a colonoscopy. Aware that I had met my deductible, I decided to schedule the stress test and colonoscopy before the end of September. The timing was tight, but the doctor’s office managed to schedule them both for the third week in September. This was one of those decisions that seemed perfectly reasonable at the time but I would later regret.
The Stress Test
On the morning of my stress test, I arrived at 7:45 fasting and ready to get the visit over so I could head to Hardees for a biscuit and sausage gravy fix. I was told the person who normally administered the test was sick, but a substitute would arrive shortly. An hour later, the substitute tech arrived. I had severe misgivings when she arrived dressed in black scrubs, covered with an indeterminate number of body piercings and her cell phone attached to her ear. Between calls she injected me with radioactive dye (I was still glowing 3 days later); dry shaved my chest with a dull razor, glued 8 monitors to my raw chest with Gorilla Glue and told me to start walking on the treadmill. The goal was to get my heart rate up to 155. After twenty minutes, I was walking very fast and my heart rate was only 119. She jacked up the speed and told me to start running. Her cell phone rang and she stepped out to answer it. When she returned 5 minutes later, my heart rate was 185, I was gasping for breath and I had pulled a calf muscle. She said that was great and began to slow down the machine. After letting me crawl off the treadmill unassisted, she pulled the monitors off my chest. I would have screamed, but I couldn’t catch my breath.
The economy has passed its stress test for now. Talk of a depression is gone, the stock market has rallied and the economy looks like it may have bottomed in July. Markets are functioning again. You can actually open your mutual fund and 401(k) statements without mixing up a batch of jell-o shooters. Many economists expect economic growth of close to 3% for the remainder of 2009. Most of the large banks are making money again, some a lot of money.
The Doctor Is In
The day after my stress test, I drank a gallon of lime flavored medicine in 45 minutes and had 7 popsicles.
Visit us at www.cutlerconsultinggroup.com
According to the police, a Texas woman lived in an apartment with her dead boyfriend for a week. Know why he didn’t marry her? Cold feet.
And speaking of cold, here we are at the World Series…baseball in November in the Northeast. Lots of folks in mortgage banking like numbers and statistics, so here is one question (totally un-mortgage related) that is interesting:how many baseballs does a major league team use per season? It turns out that, on average, a ball only lasts 3-4 pitches (foul balls, scuffs, home runs, end of inning, etc.) so each game consumes roughly 100 balls. So with 30 teams, 162 games, the approximate usage is 220,000 balls per year! The ones that don’t end up on fan’s shelves are used for batting practice, or by minor league teams.
Most economists believe that although the internet bubble took its toll on stock prices and the stock market in general, the housing bubble has had more of an impact on our sense of well-being. It seems to remind us that, for whatever reason you attribute to the dramatic rise in housing prices (low interest rates, a government mandate to make loans to unqualified buyers, Wall Street, etc.), that the faster something goes up, the faster it comes down. Any time the price that people will pay today depends on the belief that other people will pay even more tomorrow, you have a potential price bubble.
more on the economy, Bank of America Home Loans, US Bank, plus daily joke CLICK HERE
stock market peak? – Bill Gross new piece – Midnight Candles – Investment Outlook November 2009 – … I’ll jump straight into a discussion of why in a New Normal economy (1) almost all assets appear to be overvalued on a long-term basis, and, therefore, (2) policymakers need to maintain artificially low interest rates and supportive easing measures … The Fed will likely require 12–18 months of 4%+ nominal growth before abandoning the 0% benchmark. … conclusion … if you wish, but the six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle. … – PIMCO
Primer on how option arms work – long but a good reference piece – Will Option ARM Loans Still Implode? – Contributed by Patrick Pulatie, CEO, Loan Fraud Investigations – IAmFacingForeclosure.com
propping up stocks? – Primer on tri-party repos – long but essential reading – An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility – … on September 14, 2008, the Federal Reserve first established what is known as the Primary Dealer Credit Facility (PDCF), and subsequently amended it, so that the Fed, in becoming the lender of last resort, would allow any collateral, up to and including stocks … By doing so, the Federal Reserve effectively gave a Carte Blanche to primary dealers to purchase any and all equities they so desired, with such purchases immediately being funded by the US taxpayer, via the PDCF. In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent. … – Tyler Durden - Zero Hedge